Second Day of Borrower Defense Neg Reg Focuses on Partial Relief, Standard of Proof

Higher education stakeholders on Tuesday continued their negotiations to write regulations for a system through which borrowers may have their federal loans discharged under certain conditions. While the first day of negotiated rulemaking, or “neg reg,” centered primarily around debate as to whether livestreaming of the meetings would be permitted, negotiators turned their focus to issues related to defining misrepresentation and fraud, calculating the amount of harm imparted on a borrower, potentially issuing partial relief, and establishing a standard of proof for borrower defense claims.

Negotiators dove into their outlined issues after James Manning, acting under secretary of education, gave an update regarding the Department of Education’s (ED) progress toward processing tens of thousands of pending borrower defense claims. Manning said ED will soon begin issuing decisions on the approximately 95,000 outstanding claims, and said there would soon be a “consistent downward trend” in the number of claims.

Prior to the beginning of the first neg reg session, ED circulated “issue papers” among negotiators that homed in on particular issues for discussion. ED officials repeatedly emphasized that the purpose of the first neg reg session will primarily be for gathering information, and that ED would not be making suggestions for the regulations at this time. Rather, ED officials wanted to gather information from negotiators to inform future drafts of the regulations.

The first issue on the table posed the question of whether ED should establish a federal standard for evaluating borrower defense claims – rather than one based on state law – and what the basis for a claim would be. In other words, what type of act would give cause for the issue to rise to the level of a borrower filing a claim?

During much of the discussion – similar to last year’s negotiations – the committee members went back and forth about how to specifically define fraud, misrepresentation, and substantial misrepresentation. Additionally, they debated what standard of proof would be used to evaluate the claims: a clear-and-convincing standard, or a preponderance of the evidence.

John Ellis, a representative from the Texas Office of the Attorney General, said when discussing the burden of proof, it comes down to the “degree of doubt” that can be in one’s mind. Clear and convincing evidence, he said, is evidence that makes the deciding body – in this case, ED – ”virtually certain,” while a preponderance of evidence standard means the evidence “more likely than not” supports the claim.

Many of the negotiators representing students and consumer advocacy groups supported the preponderance of evidence standard, which is more commonly used in consumer protection law. Those committee members also tended to agree that a borrower defense system should start with the assumption of giving full relief to borrowers.

“We want to move away from any system that puts the responsibility of policing schools on students,” said Ashley Harrington, special assistant to the president and counsel for the Center for Responsible Lending.

The discussion of the standard of evidence also led to a debate about what, if any, evidence borrowers should bring to support their claims, as well as whether they could have reasonably determined the information they received from an institution was not correct, mitigating the damage.

Will Hubbard, vice president of government affairs at the Student Veterans of America, asked negotiators to apply that standard to other purchases, such as buying a stick of gum.

“[If] you have to prove that it is good before you even make the purchase, [it’s] untenable,” he said.

Abby Shafroth, a staff attorney at the National Consumer Law Center, said that often the misrepresentations that lead students to file a claim are oral misrepresentations, and that gathering evidence would be difficult.

“In working with borrowers … I can tell you that they rarely have evidence beyond their own testimony about what happened to them,” she said. “They’re not holding onto things thinking, ‘I’m going to have to bring a case one day.’”

“For these reasons, in order to make sure the process is accessible to those who have meritorious claims … they should be able to support their claims with their sworn testimony,” she added.

Other issues from last year’s neg reg also resurfaced, such as whether there should be a statute of limitations on borrower defense claims, how the actual application for claims and the adjudication process would be structured, and circumstances under which institutions should be financially liable for paying the government back for discharged loans.

The negotiators also discussed financial responsibility issues, and whether there should be “triggers” that would require institutions to submit a letter of credit (LOC) for a certain percentage of the amount of Title IV funds the school received during the most recent award year.

On Wednesday, the committee is expected to continue with a fourth issue focusing on pre-dispute arbitration agreements, class action waivers, and internal dispute processes.

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